Maryland prosecutors have conducted a long investigation into an allegation that former governor Marvin Mandel forged an endorsement before depositing a $12,000 check, according to a member of the state special prosecutor's office. The prosecutors recently dropped the matter, saying they had insufficient evidence to sustain charges.

During the six-month probe, it was established that Mandel deposited the check last November in his account after endorsing it with both his name and the name of a business associate, according to the law enforcement source.

The check was made out to both Mandel and the associate, D.C. businessman Michael Keane. However, the source said Keane denied that Mandel was authorized to sign Keane's name or to cash the check.

The source gave the following account of the allegation:

The $12,000 check was intended to be a "flash check," that is, one that Mandel could show to business associates as a demonstration that he had $12,000. But Keane contended it was his understanding that the check was never to be cashed.

Keane, who had once been a client of a consulting firm Mandel set up after leaving office, was asked to help the former governer by giving him the check to display in negotiations for a business deal Mandel was trying to make.

Keane went to a friend who agreed to make out a check to both Mandel and Keane. Mandel received the check and allegedly deposited it after signing both names.

Keane later went to the bank which issued the check and signed an affidavit asserting that Mandel was not authorized to sign his name.

The issuing bank was later reimbursed by the bank where the check was deposited and Mandel reimbursed that bank.

Gerald Ruter of the special prosecutor's office said that the investigation was terminated because of failure to find enough evidence to sustain criminal charges.

According to the law enforcement source, Mandel's attorney, Arnold Weiner, told prosecutors that the check was given to Mandel to cash, that he had the authority to sign both his name and Keane's, and that he intended to repay the proceeds. Weiner could not be reached for comment last night.

Mandel began on May 19 to serve a three-year federal prison sentence on a political corruption conviction.